INSEAD professors W. Chan Kim and Renée Mauborgne got a lot of interview time last year, thanks to the release of Blue Ocean Shift, the much awaited (by the better sort of MBA, at least), follow-up to their seminal 2005 text: Blue Ocean Strategy.
Their strategic metaphor describes business competition in terms of two oceans. One is red, the other is blue.
Red oceans represent all the industries in existence today — the known market space. In the red oceans, industry boundaries are defined and accepted, and the competitive rules of the game are known. Here companies try to outperform their rivals to grab a greater share of product or service demand. As the market space gets crowded, prospects for profits and growth are reduced. Products become commodities or niche, and cutthroat competition turns the ocean bloody; hence, the term “red oceans”.
Red oceans are where most retailers swim.
Blue oceans, in contrast, denote all the industries not in existence today — the unknown market space, untainted by competition. In blue oceans, demand is created rather than fought over. There is ample opportunity for growth that is both profitable and rapid. In blue oceans, competition is irrelevant because the rules of the game are waiting to be set. Blue ocean is an analogy to describe the wider, deeper potential of market space that is not yet explored.
When any new market is created, according to Kim and Mauborgne, it starts out blue. If a company gets it just right, it can swim in the blue for years… they used Cirque du Soleil, Home Depot, Southwest Airlines and CNN as examples of this effect. More recently, the Nintendo Wii managed about 5 years before it’s patch of blue water started filling with blood. New examples in Blue Ocean Shift include the National Youth Orchestra of Iraq, which challenged sectarian divisions; French appliance maker Groupe SEB, which decided to produce french-fry makers that don’t involve any actual frying; and the government of Malaysia, which moved inmates out of overcrowded prisons to idle land on military bases.
But despite these, the main criticism of Blue Ocean Strategy has always been that there really aren’t many good examples of successful Blue Ocean strategy… and there are counter examples, of course. Microsoft invented the tablet a whole decade ahead of Apple. As Bill Gates later mused on the success of the iPad: “[Steve Jobs] did some things better than I did. His timing in terms of when it came out, the engineering work, just the package that was put together. The tablets we had done before, weren’t as thin, they weren’t as attractive.”
The secret of Blue Ocean Strategy, it appears, is as much timing as strategic intent. And a fair dose of luck. But in the end the area of tablet computing was indeed Blue Ocean, uncontested market space... there were other fish swimming in it, but they just weren’t moving much. And there certainly wasn’t any blood in the water. So as soon as technology advances allowed a new attempt at it, Apple moved in and owned it. And still does, really.
Where I think Kim and Mauborgne’s thesis really fails, however, is not in lack of successful examples, nor in presence of counter examples, but rather in its failure to keep separate the idea of demand from the idea of knowledge of demand. In other words, there’s a lot of market demand out there which is uncontested, not because it is uncreated, but because it is unnoticed. It doesn’t require bringing whole new oceans of new demand into existence. The demand is already out there, in little blue pools scattered among the red.
If you are a big fish in this ocean, and you can find those clear blue pools that are uncontested by bigger fish, you can occupy them without a drop of blood spilled. And as we start to see a few more of those little blue pools, we start to see more and more, and this apparently bloody red ocean takes on a distinctly purple hue. All you have to do is look closely. At all of it. And find the blue patches among the red.
The only reason people haven’t been exploring this purple ocean systematically, is that, until now, no one could make a map.
There are people out there who are openly expressing demand, writing it down in big letters for anyone to see who is able to look. You’re almost certainly one of them. They are writing it down in billions of search engine queries and web site visits every day, allowing us to build detailed maps of entire market spaces — detailed charts of the oceans of demand, with the depth plumbed for every part, its fish counted and weighed, and a judgement made: Are there fish here yet? Perhaps just a scattering of minnows? In which case, if you were to swim here… what depths of demand would you feed and be fed by??
As thousands of these pools of poorly-contested or uncontested demand are mapped, they can be sorted into value order, clustered by similarity, and split into four kinds.
- Pools of demand you can meet now with existing products (we just need to call them the right things). Got Passive Infrared Sensor Lighting? Everyone actually asking for Security Lights? Use the words your customers use to describe the products you already have.
- Pools of demand you can meet soon with ranging of new products. They want sheds? Don’t have pentagonal sheds? Easy to offer pentagonal sheds? Give them pentagonal sheds!
- Pools of demand you could meet one day with development of new products. For example, each year, around 36,000 people in the UK go looking for integrated condenser tumble driers. By integrated, people mean that it integrates into a kitchen cupboard, with a matching fascia. People expect the product to exist. It doesn’t appear to.
- Pools of demand you never want to meet. Stop thinking about this demand. Let it go. It’s not for you. For now. Unless…
The resulting insight informs marketing, merchandising, buying, new product development, category hierarchies, market strategy… even mergers and acquisitions. This methodology has already proved itself at big online players on our client roster, but increasingly we’re seeing it used by clients, where e-commerce is just one channel among many, to drive broader business strategy.
While Kim and Mauborgne use a metaphor of oceans, bloody or blue, I prefer to think of this as a system of mutuality. Society has certain needs, which are expressed at scale in the form of people’s search and other online behaviours. These behaviours can be used as a strong signal for the overall needs in society as a whole. And once the needs of a market are deeply understood, at scale, businesses can start to offer products to meet that demand. Instead of starting products-out, businesses can start demand-in. It puts businesses into a state of ‘radical solidarity’ with the people in the market that they serve, where they redefine customer to mean any person whose needs they can effectively meet; product as any good that meets a need; competitor as any of the tens of thousands of other business who are meeting, at least in part, one of those needs.
(This doesn’t just apply to commercial transactions. As I write this our team of analysts are deep in a taxonomy mapping of all UK demand for health and social care — people’s worries, hopes and fears all committed to the ether in the search of solutions and support. Death, bereavement, mental illness, loneliness, mysterious symptoms, fears of treatments — all are laid bare for the NHS to consider in their own digital transformation).
People don’t always say what they want, or even want what they really need. The blue oceans that no-one knows they need until they see it, those are unlikely to be expressed in the web’s big data… but there’s so much out there that people do know they need, that they do ask for explicitly, that it seems as if we should give people the things they are already asking for before fretting too much about giving them new things to ask.
It’s time to explore your purple ocean.